Pepsi price fight hurts Coca-Cola
Coca-Cola Amatil has added its name to a growing list of supermarket suppliers to feel the earnings pinch of a relentless price war waging across the aisles, posting a 12.3 per cent slide in interim profits that will also spill into weaker full-year results.
It's flagship Australian beverage operation, which contributes 60 per cent of group revenue and 70 per cent of pre-tax earnings, suffered from a discount war with new brand entrant Pepsi Next, made worse by lower retailer inventory levels for its soft drinks, energy drinks and bottled water.
But the company still had its eyes set squarely on growth; it would re-enter the Australian beer market in December with a range of US beer brands through a new relationship with Molson Coors and Indonesia again generated double-digit earnings growth, with volumes up 11.8 per cent and pre-tax earnings up 12.5 per cent to $31.4 million.
The supermarket price wars took the steam out of its local drinks business however, as it posted a 10.1 per cent decline in earnings to drag down CCA to see it record its first fall in group earnings in seven years.
CCA on Tuesday said interim profit fell 12.3 per cent to $215.9 million as trading revenue also went backwards, 3.5 per cent weaker to $2 billion. The result was slightly better than market expectations while interim EBIT of $373.9 million, down 6.9 per cent, was better than guidance given in May at the annual general meeting where CCA warned pre-tax earnings could fall between 8 and 9 per cent.
The interim dividend of 24¢ per share was maintained and investors enjoyed a surprise 2.5¢ special dividend.
However, investors were dealt a blow when chief executive Terry Davis, who is expected to name his replacement soon, provided a dour trading update which confirmed continued tough trading conditions in the grocery channel would strip back earnings this year.
Although the key trading months of November and December - where it makes the bulk of its profit - were still ahead of it, CCA now expected group EBIT to be flat to 4 per cent down for the full year.
The market sold down on the warning, with CCA shares closing 70¢ weaker at $12.04.
Mr Davis said he hoped the price disruption caused by Pepsi Next coming into the market would be a one-off, and that CCA would attempt to soften the pressure from supermarkets slashing prices by offering shoppers innovative packaging.
"The strength we have is the number of package options and tailoring those package options that we are able to give to the customer and have scale, pricing and margin," Mr Davis said. This included innovations like its new single-serve cans of Coca-Cola.
CCA is the latest supplier to see its earnings eroded by the supermarket wars. International players, such as Nestle and Unilever, that operate consumer businesses in Australia have also witnessed profit collapses recently.
"Certainly everybody is hurting," Mr Davis said. "Every day you see the results, I saw Unilever, Nestle, and our results shine in that respect in a relative sense. Would I have liked to say we will get 8 to 10 per cent earnings growth? Absolutely, but we also have to be realistic."